Tribunal finds that the existence of tax invoices was not sufficient to prove taxable supplies were acquired

In GH1 Pty Ltd, in Liquidation and Commissioner of Taxation [2017] AATA 1063 the Tribunal found that the Applicant was not entitled to input tax credits in respect of creditable acquisitions purportedly made in the course of the development of land in Western Australia. The Tribunal agreed with the Commissioner that the Applicant did not establish that the applicant received taxable supplies. The decision illustrates that the existence of a tax invoice is, in of itself, insufficient to establish an entitlement to input tax credits.

The Applicant carried on a business of managing, financing and constructing land developments in Western Australia. In 2007 the Applicant entered into contracts with MNWA for the provision of bulk earthwork services for two property developments, referred to as “Stage 5” and “Stage 6”. The Applicant lodged an activity statement for the December 2009 quarter claiming credits of $912,216 and for the March 2010 claiming credits of $812,142. The claims included input tax credits for work purportedly performed by MNWA for Stage 5 and Stage 6, invoiced as follows:

11/10/19 – Claim #1 progress payment for Stage 6 – $1,751,181.70;

7/12/09 – Claim #2 on Stage 5 – $2,571,508.32

31/10/010 – Claim #2 on Stage 5, Claim 2 on Stage 6 – $4,659,599.62

The total of the input tax credits claimed was $817,208.15. After conducting an audit, the Commissioner disallowed the Applicant’s entitlement to the input tax credits for these transactions.

At the hearing the Applicant contended that it had met its burden of proof in satisfying the Tribunal that the Applicant was entitled to claim the credits. Further, the Applicant contended as follows:

the Commissioner bore an evidentiary onus in respect of any allegation that the transactions underlying the tax invoices did not occur; and

to the extent that the Tribunal needed further proof, the transactions had been reported consistently in the books and records of the Applicant and MNWA.

At the hearing the Commissioner contended that the the Applicant’s entitlement to input tax credits was correctly disallowed because:

the purported invoices do not evidence any actual supplies made by MNWA to the Applicant;

evidence from various sources, including third parties, showed that all development works for Stages 5 and 6 was completed prior to the dates of the purported invoices; and

the Applicant already claimed the credits in its BAS for the September 2009 and December 2008 quarters.

The Tribunal agreed with the Commissioner. The Tribunal also found that the Commissioner did not bear any evidentiary onus in respect of an allegation that the transactions underlying the tax invoices did not occur. The Tribunal observed as follows (at [42]-[44]):

42. As submitted by the Commissioner:

…if the applicant had led credible evidence to establish that the acquisitions took place, the Commissioner would need to then point to evidence which supported his view that they did not, and in doing so, he would assume an evidentiary onus: Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 342. But in the evidentiary lacuna presented to the Tribunal by this applicant, that position never arises because the highest point that the applicant’s case rose to was a submission, in effect, that because the acquisitions were recorded in the MYOB accounts of the applicant, they must have occurred…

43. On the evidence before it, the Tribunal finds that the purposes “tax invoices” do not evidence any taxable supplies made by MNWA to GH1. The mere existence of a “tax invoice” is not, by itself, sufficient to establish that a “taxable supply” (under s 9-5 of the GST Act) and corresponding “creditable acquisition” (under s 11-5 of the GST Act), has, in fact, occurred.

…the reality is that a tax invoice does not create a taxable supply; it records one. If a taxable supply did not take place, then a “tax invoice” is meaningless. In other words, documents that are so called “tax invoices” cannot substantiate a creditable acquisition, if in fact there was no supply or acquisition. It must follow that the scrutiny of transactions is always essential, particularly transactions between related parties.

Having regards to the reference of DP Frost to transactions between related parties, it should be noted that the sole director of the Applicant was in a de facto relationship with the sole director of MNWA.

A particular difficulty for the Applicant in this matter was that no evidence was led from any witness to explain the underlying transactions to the Tribunal. The Tribunal considered that evidence as to the transactions to which the tax invoices and the financial accounts purport to record should was been led by the Applicant. The Tribunal therefore placed no weight on the accounts of the Applicant that recorded the transactions.

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